October 29, 2024
FOR IMMEDIATE RELEASE
Contact: Nancy Derringer, nderringer@crcmichstaging.wpengine.com, 734-548-0033
- In Michigan, the current local government revenue structure is largely disconnected from the local economy, leaving them vulnerable to macroeconomic trends and unable to provide the services needed. Communities need more mechanisms to capture the economic activity taking place within their boundaries.
- Many other states afford their local units of government a number of tax options – general and selective sales, income, transportation, various tourism, and others – to capture economic activity and to create diverse revenue streams.
- Expanding access to local-option taxes in Michigan requires the state to authorize local units to levy different taxes, but would not be levied unless acted upon by the local government and submitted to the voters for approval. Expansion of local-option taxes could be offered to cities and townships, but may be best suited to the regional level of government (e.g., counties or larger regions).
February 22, 2018, Livonia, Mich. – Michigan local governments are challenged by two issues related to how they fund services. First, they have been under historic revenue and spending pressure for years. The combination of diminished property tax base, cuts to state revenue sharing, ballooning legacy costs, and state-imposed service mandates have left many local units searching for alternatives to fund services their constituents demand. Second, even when times are good and their local economies are strong, the taxes that fund local governments are not capable of fully capitalizing on this strength.
A new Citizens Research Council report, Diversifying Local-Source Revenue in Michigan, explores a variety of tax options to help on both of these issues. Along with our 2017 report on regional service delivery this research can be used to guide discussion of new models for local government revenue and service delivery structures that can meet local needs and grow with the economy.
“Local-option taxes were not needed in Michigan as long as state revenue sharing was fully funded and distributed in a meaningful way,” said Eric Lupher, President of the Citizens Research Council of Michigan. “State revenue sharing payments lessened the burden on the property tax and created a diverse revenue stream wherein local governments benefited from economic growth taking place in Michigan.”
“Since the state has cut state revenue sharing significantly and there seems little prospect of returning it to the levels intended by earlier legislatures,” Lupher added, “we felt it necessary to explore the taxes authorized to local governments in other states and assesses the degree to which they would benefit local governments in Michigan.”
Most other states give local governments more latitude in assessing taxation that fits their unique situations. A review of tax laws around the country found a variety of local-option taxes allowed by various states:
- Income taxes are authorized in 18 states, including cities in Michigan ).
- Sales taxes are authorized in 37 states.
- 11 states are authorized to levy motor fuel taxes.
- 37 states are authorized to levy some kind of local-option transportation tax.
- Local governments in 18 states benefit from utility taxes.
- Alcohol taxes are authorized in eight states and local cigarette taxes are authorized in 13 states.
- Medical marijuana taxes are authorized in six states and seven more authorize local taxes on recreational marijuana.
- Local governments in 15 states benefit from casino gambling taxes.
- 45 states levy at least one local tourism-related tax (Michigan allows select governments to levy accommodations and rental car taxes).
- Multiple states allow local units to levy other local-option taxes, including entertainment and amusement taxes, soda or sugar taxes, and sharing economy taxes, among others.
This paper is accompanied by a shorter paper that specifically investigates local-option taxes for Detroit. Detroit already has the most diverse revenue tax structure among local governments in Michigan, but because the city was hit especially hard by the Great Recession and ensuing tax foreclosures revenues are significantly below what they were several years ago.
While assessing taxation at the local level can create problems for administration and economic distortions, some of these concerns can be addressed by authorizing them at the regional level. Moving forward, the discussion needs to continue on regional service delivery, tax-base sharing, and governance. Providing services and raising taxes at the regional level can address a lot of the concerns around local government service delivery and local-option taxes.
Both papers are available at no cost on the Citizens Research Council of Michigan website:
Diversifying Local-Source Revenue Options in Michigan
Diversifying Local-Source Revenue Options in Detroit
